The Good, Bad, and Ugly of Exelixis' Drug Delay

Delays are hardly ever a good thing. And they tend to be worse in an industry like biotech, where there's high anxiety over binary events.

So it's a little surprising that Exelixis (Nasdaq: EXEL) is trading relatively flat today despite announcing a three-month delay in the top-line data for its lead compound. Data from a trial testing cabozantinib in medullary thyroid cancer is now expected at the end of the third quarter.

Investors have been waiting for the company's first chance at getting a drug on the market since the trial started in late 2008, so another three months apparently isn't that big a deal for investors.

The trial can't be completed until a certain number of progression-free survival events -- tumors starting to grow again -- occur. The delay seems to be due to patients' taking longer to progress than Exelixis expected.

There are three possibilities for the delay:

Patients taking cabozantinib are living longer than expected.

Patients taking placebo are living longer than expected.

Both.

The data is still blinded -- Exelixis doesn't know which patients got cabozantinib and which ones got placebo -- so there's no way to know which group is taking longer to progress. The first is obviously a great result; waiting an extra three months won't matter one bit if the drug works better than expected.

If placebo patients are living longer, but the cabozantinib results are as expected, the difference between the two would shrink. In the worst case, we could get an ugly result where the trial fails to show a statistically significant effect.

A scenario in which both live longer isn't ideal, either. For instance, a four-month improvement from eight months on placebo to 12 months on cabozantinib is better than a four-month improvement that shows cabozantinib improved PFS from 12 months to 16 months.

Part of the problem here is that the enrollment criteria for the earlier phase 1/2 trial was less stringent than the phase 3 trial, which enrolled only patients with progressing disease. The specificity should help it compete against AstraZeneca's (NYSE: AZN) vandetanib, which was recently approved for the same cancer type, but the change makes it harder to predict that the drug will actually work.

In the big picture, whether cabozantinib passes its phase 3 trial in medullary thyroid cancer doesn't matter that much, since it's also being tested in prostate cancer, where it'll enter multiple phase 3 trials in the next year. Sure, there's more competition for prostate-cancer patients from drugs such as Johnson & Johnson's (NYSE: JNJ) Zytiga, Dendreon's (Nasdaq: DNDN) Provenge, and Sanofi's (NYSE: SNY) Jevtana, but the medullary thyroid cancer market is tiny compared to the prostate cancer market. To hit blockbuster status, cabozantinib will have to work in prostate cancer or one of the other large markets.

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Nice article Brian. While prostate cancer is the big indication right now, I don't think the MTC news would be insignificant by any means. It opens up the door to potential off label use which could be significant, doesn't it?

The off-label use would only occur from the time that Exelixis presents phase 3 data for prostate cancer (few, if any, docs would use it before that) until it's approved -- so around 6-8 months.

You're right that an approval isn't insignificant in the short term though. Even if it's only bringing in a couple $100 million, that's millions of dollars that's available to support R&D. In the long-term, the revenue from thyroid cancer will hopefully be close to a rounding error for overall revenue.